Linear Algebra and Economics

Steve Levandusky

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Economics is the study of how best to allocate scarce resources among competing uses. One branch of economics is called input-output economics, which provides a way to track how goods that are both inputs and outputs of production interact during the production process. Linear algebra aids in the analysis of input-output economics by allowing the data collected to be expressed and manipulated easily in a matrix.

A model of input-output economics we will be looking at is named the Leontief Input-Output Model for Wassily Leontief. Leontief won the Nobel Prize in Economics in 1973 for his role in input-output economic analysis. He is associated with the development of the linear activity model of general equilibrium and the input-output analysis that comes from it. Leontief is responsible for making quantitative data more essential in the study of economics rather than just theoretical assumptions. Through Leontief’s work we will connect linear algebra and economics. [1]

To learn more of what input-output analysis is select the input-output analysis tab. To see the linear algebra behind input-output analysis select the input coefficient tab. To learn about some applications of input-output analysis select the applications tab.